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HMRC internal manual

Company Taxation Manual

Particular topics: companies in partnership : interest paid etc

Yearly interest

SAIM9070 explains the circumstances in which a company is required to deduct income tax on payment of yearly interest.  ITA07/S874 (1)(c) provides that this also applies to payments of yearly interest made by or on behalf of a partnership (including an LLP to which CTA09/S1273 applies – see CTM36550) of which a company is a member.  In what follows, references to ‘partnership’ are to partnerships and LLPs with a company member, except where the context requires.  It is the partnership which has the obligation to deduct and account for income tax.

 

The tax deducted from such payments is accounted for under ITA07/PART15/CHAPTER16: see ITA07/S874 (7)(b) and S963 (1)(a), which makes provision for the collection of income tax in respect of payments from which a person other than a UK resident company is required to deduct a sum representing income tax.

ITA07/PART15/CHAPTER6 makes provision also for the deduction of tax from annual payments and patent royalties in certain circumstances.  ITA07/S901 applies to annual payments made by non-individuals and ITA07/S903 (6) makes provision for non-individuals in relation to royalties.  See SAIM9120 and SAIM9130.

 

CTM35215 explains the circumstances in which the obligation to deduct tax on payment is removed for certain payments made on or after 1 April 2001. * This provision may apply to payments by a partnership where *any member is a company, and to recipients which are partnerships all of whose members are UK resident companies.

An LLP is under the Limited Liability Partnerships Act 2000 a body corporate (see CTM36550), but an LLP carrying on a trade or business is treated like a partnership for specified purposes.  CTA09/S1273 provides that, unless otherwise provided for, references to a firm or partnership include an LLP, references to a company do not include an LLP and activities are treated accordingly.  ITTOIA05/S863 makes similar provision for income tax.  And CTA09/S1258, which applies to all ‘firms’, meaning trading partnerships, provides that, unless otherwise indicated, a firm or partnership is not to be regarded for income or corporation tax purposes as an entity separate and distinct from its partners.  However, ITA07/S874 *is *just such a contrary indication.  It follows that the firm or partnership must deduct and account for income tax, regardless of its status (as a limited or limited liability partnership, for instance, so long as there is a corporate member).